hoover institution stimulus measurement article

8/22/2019 Hoover Institution Stimulus Measurement Article

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How Big were the Government Responses to the Recession?

Barry Anderson*

J anuary, 2011

Abstract

This paper estimates the size of Federal Government responses to the recession, otherthan the various Government financial stabilization programs, to be about $3.4 trillionover the 2008-2012 period. Of this total, $1.35 trillion, or 40%, was for spendingprograms; the remainder for tax cuts. Importantly, more than half (52%) of theseresponses have not yet taken place but will impact the economy in 2011 and 2012.

In addition to these sums, the Government committed more than $10 trillion to assist thehousing and financial sectors, although the governments actual spending was muchless than its commitments, and its net spending after loan repayments and the sales ofequity shares that it had acquired will be even less. However, the wide variety offinancial stabilization efforts cant be added to the other spending and tax cut efforts ascommitments (especially net commitments over time) are measured in a differentmanner than spending or tax cuts, and the size of some commitments were unlimited orunknown. Nevertheless, it is appropriate to describe the size of the FederalGovernments responses to the economic recession as including both the more than $3trillion in spending and tax cuts and the commitments for more than $10 trillion invarious financial stabilization programs.

* Barry Anderson served as the Acting and Deputy Director of the CongressionalBudget Office from 1999-2003, and as the senior career civil servant (and otherpositions) at the White House Office of Management and Budget from 1980-1998. Hehas also held senior positions at the Organization of Economic Cooperation andDevelopment, the International Monetary Fund, and the US General Accounting Office.He currently is an independent consultant. The author wishes to thank the WorkingGroup on Economic Policy at the Hoover Institution for supporting this paper, and J ohnF. Cogan and J ohn B. Taylor, both at the Hoover Institution, for their valuable commentson this paper.


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Was the latest Federal Government stimulus bill--the Middle Class Tax Relief Act of

2010--necessary, or was the American Recovery and Reinvestment Act of 2009

(ARRA) big enough? Werent there other, some even larger, Federal programs that

helped mitigate the impacts of the recession? How big were they? How much of the

money from all these programs has already been spent (or put another way, how much

of ARRA was really shovel ready), and how much of it will be spent in the future? And

shouldnt we know the answers to these questions, especially about how much remains

to be spent, before we make decisions about whether to take additional actions in

response to the recession?

To address these and other questions related to the Federal Government responses to

the recession, an accurate estimate of the size of all of the Federal Governments

efforts to mitigate the impacts of the recession should be available. However, because

of the complexity, timing, and form of the various Government actions, frequently only

estimates of the size of ARRA have been cited.

This paper discusses the size and timing of four different kinds of Federal Government

efforts to help mitigate the impacts of the recession:

stimulus bills passed explicitly as a result the recession;

so-called automatic stabilizers, programs that without the need for new

legislation automatically increase spending or cut taxes for those impacted by the

recession;


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increases in discretionary spending that occur, at least in part, in response to

the recession; and,

financial stabilization efforts, actions taken by the Federal Government in

support of the housing and financial markets.

Although all of these efforts may be classified as attempts to help mitigate the impacts

of the recession, it would not be accurate to describe all of them as providing an

economic stimulus. Indeed, the underlying rationale for many of the programs, even

including some of those contained in the Stimulus Bills listed below, may include one

or more of the following in addition to (or even in lieu of) a belief that the action will

stimulate aggregate economic activity:

a desire to alleviate human suffering;

an opportunity to achieve broad social policy objectives unrelated to the

recession;

an opportunity to achieve narrower policy objectives such as delivering benefits

to specific classes of recipients or to specific geographic areas.

This paper measures the size of the stimulus bills, automatic stabilizers, and increases

in discretionary spending in dollars, not as a percent of potential gross domestic product

(GDP). Although the potential GDP statistic is usually used to measure the impact of

automatic stabilizers, and is a better measure to compare programs among countries

and over different time periods, international and inter-temporal comparisons are not the

subject of this paper. Also, the estimates provided do not take into account the fiscal


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impacts of the recession or of the Federal Governments responses to it on State and

local governments. Although the impact of the recession on State and local government

finances is a legitimate subject for analysis, this paper only looks at US Federal

Government responses to the recession over the 2008 to 2012 period.

The estimates contained in this paper come from Congressional Budget Office (CBO)

documents: their annual and updated Budget and Economic Outlook publications;

scorekeeping reports; and other documents. Note that many of these estimates,

especially those for 2011 and 2012, are likely to be revised.

In general, the size and timing of the various Government responses are measured

relative to CBOs J anuary 2008 baseline, a pre-recession baseline that assumed steady

economic growth over the 2008-2012 period. (See Appendix A for a more complete

description of this baseline and a comparison of CBOs assumptions for real GDP in

J anuary 2008 with current assumptions.) There are several benefits from using this

baseline:

it is easily defined and known;

it was frequently used as the baseline or basis for comparison when the political

actions to mitigate the impacts of the recession were taken; and,

it permits comparisons of the different actions in total and over time.

Stimulus Bills


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In the past few months, there have been numerous calls for the extension of existing

stimulus programs and for additional stimulus efforts. These calls frequently cited how

small ARRA was relative to the size of the recession. Paul Krugman, a columnist for

the New York Times, has been outspoken in calling for a much larger new stimulus bill,

saying, for example: America needed a much stronger program that what it got1; an

$800 billion program [ARRA], partly consisting of tax cuts that would have happened

anyway, just wasnt up to the task of filling [a projected $2.9 trillion hole in the

economy]2; and the original stimulus was too small.3 These calls coupled with the

belief--justified or not--that the waning stimulus of [ARRA] would have exerted a heavy

drag on growth4

were undoubtedly some of the reasons behind the enactment of the

Middle Class Tax Relief Act in December 2010.

But ARRA was only one of the stimulus bills passed before the enactment of the Tax

Relief Act. Although by far the largest of the bills, it was certainly not appropriate to

exclude the others. Likewise, if calls for further stimulus are made, the total impact and

timing of ARRA, the Tax Relief Act, and all the other stimulus bills should be

considered.

1Paul Krugman, Falling Into the Chasm, New York Times, October 24, 2010.

2Ibid., The Real Story, New York Times, September 2, 2010.

3Ibid., This Is Not a Recovery, New York Times, August 26, 2010. Other examples include the following

columns by Krugman in the New York Times: Doing It Again, November 7, 2010; The Focus Hocus-Pocus, November 4, 2010; Hey, Small Spender, October 10, 2010; and 1938 in 2010, September 5,2010.4

J ames C. Cooper, Stimulus II: Game Changer for Spending and the Economy, The Fiscal Times,December 20, 2010.


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As Table 1 indicates, the total net impact of the five bills 5 is $1,714 billion, $683 billion

(40%) in spending and $1,031 billion in lower taxes.6

Moreover, 57% ($983 billion) of

the impact of the five bills on spending and revenues has yet to occur but will help the

economy in 2011 and 2012.

Table 1. Stimulus Bills(in billions of dollars)

2008 2009 2010 2011 2012 2008-12

Economic Stimulus Act of 2008. P.L. 110-185

Outlays 38 4 0 0 0 42

Change in Revenues -114 -12 12 9 8 -97

Net Impact 152 16 -12 -9 -8 139

American Recovery & Reinvestment Act of 2009(ARRA). P.L. 111-5

Outlays 0 114 228 126 48 516

Change in Revenues 0 -66 -164 -8 10 -228

Net Impact 0 180 392 134 38 744

Hiring Incentives to Restore Employment Act of

2010. P.L. 111-147

Outlays 0 0 0 1 1 2

Change in Revenues 0 0 -4 -5 -1 -10

Net Impact 0 0 4 6 2 12

Assistance to education, State fiscal relief, and the

Supplemental Nutrition Assistance Program

(2010). P.L. 111-226

Outlays 0 0 0 23 2 25

Change in Revenues 0 0 1 1 1 3

Net Impact 0 0 -1 22 1 22

Middle Class Tax Relief Act of 2010. P.L. 111-312

Outlays 0 0 0 37 61 98

Change in Revenues 0 0 0 -337 -362 -699

Net Impact 0 0 0 374 423 797

Total Stimulus Bills

Outlays 38 118 228 187 112 683

Change in Revenues -114 -78 -155 -340 -344 -1031

Net Impact 152 196 383 527 456 1714

5A sixth stimulus bill, the Consumer Assistance to Recycle and Save (CARS) bill is not included in this

listing as its funding required subsequent appropriations. Nevertheless, the impact of CARS is included inTable 3 below.6

Throughout this paper, a decrease in revenues (that is, a response to the recession that cuts taxes) isindicated by a negative number. The Net Impact for any program would thus be the sum of outlays plusthe change in revenues with the sign reversed.


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Automat ic Stabil izers

Another Federal Government mechanism to help mitigate the impacts of the recession

are automatic stabilizers, programs that without the need for new legislation

automatically result in increased spending or lower taxes for people and businesses

negatively impacted by the recession. Traditionally, CBO and others7 measure the size

of the impact of automatic stabilizers by comparing the actual budget balance to an

estimate of what the budget balance would be if GDP was at its potential, the

unemployment rate was at a corresponding level, and all other factors were

unchanged.8 The major benefit of using potential GDP as the basis to calculate the

impact of automatic stabilizers is that it helps analysts estimate the extent to which

changes in the budget balance are caused by movements of the business cycle and

thus are likely to prove temporary rather than long lasting.9

This benefit is obtained

only if potential GDP can be accurately estimated. However, potential GDP is a

hypothetical number, estimates of which change constantly as the availability of and

actual use of labor and capital change; thus, evaluations of its accuracy are impossible.

Instead of measuring the size of automatic stabilizers relative to potential GDP, this

paper compares actual automatic stabilizer spending and revenues relative to what the

spending and revenues were projected to be before the recession. The beginning of

the recession has recently been set at the end of 2007. This implies that CBOs J anuary

7Congressional Budget Office, The Effects of Automatic Stabilizers on the Federal Budget, May 2010.

See also Daniel Cohen and Glenn Follette, The Automatic Fiscal Stabilizers: Quietly Doing Their Thing,Economic Policy Review, Federal Reserve Bank of New York, volume 6, number 1, April 2000.8Ibid. p. 2.

9Ibid.


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2008 baseline is an appropriate baseline to use because although it was prepared at

the end of 2007, the recession was not recognized as it was being prepared.

CBOs list of automatic stabilizer spending programs includes only Unemployment

Compensation, Medicaid, and Food Stamps. However, there are other programs that

clearly expand as the economy contracts: Disability Insurance; Supplementary Security

Income (SSI); the Earned Income (EITC) and Child Care Tax Credits; and family

support payments of the Temporary Assistance for Needy Families (TANF) program.

The listing in Table 2 below includes these additional automatic stabilizer programs.

Table 2. Automatic Stabilizers (AS)(in billions of dollars)

2008 2009 2010 2011 2012 2008-12

Spending Automatic Stabilizers

Unemployment Compensation

2008 Baseline 39 45 43 40 42 209

Current estimates 43 79 160 93 65 440

AS component 4 34 117 53 23 231

Medicaid2008 Baseline 208 225 243 261 282 1219


AS component 13 26 30 15 -19 65

Food Stamps (SNAP)

2008 Baseline 38 41 42 42 43 206


AS component 1 15 28 33 33 110

Disability Insurance

2008 Baseline 104 111 118 124 131 588


AS component 0 4 4 4 4 16SSI

2008 Baseline 41 43 45 51 44 224


AS component 0 2 2 2 2 8

EITC & Child Credit

2008 Baseline 56 56 57 58 40 267



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2008 2009 2010 2011 2012 2008-12

AS component 2 11 20 17 2 52

Family Support (TANF)

2008 Baseline 24 24 24 24 24 120


AS component1 2 3 2 1 9

Total, Spending Automatic Stabilizers

2008 Baseline 510 545 572 600 606 2833


Total 21 94 204 126 46 491

Revenue Automatic Stabilizers

CBO estimate of Automatic Stabilizers 47 282 351 403 331 1414

Less CBO Spending automatic

stabilizers (UC, Medicaid, FS)

18 75 175 101 37 406

Revenue Automatic Stabilizers -29 -207 -176 -302 -294 -1008

50Total Automatic Stabilizers 301 380 428 340 1499

Addi tional Discretionary Spending

Stimulus Bills are legislation enacted explicitly to counteract the impacts of the

recession. Automatic stabilizers are programs that automatically change to counteract

the impacts of the recession. But in its normal course of business, Congress can take

action to counteract the impacts of the recession without labeling that action a stimulus

bill or an automatic stabilizer program. It can do this using the annual appropriation

process; that is, it can choose to appropriate larger amounts of funds for discretionary

programs than it might otherwise choose to do in order to help counteract the impacts of

the recession.

Recognition that Congress in general responds to recessions through increasing

appropriations may not be controversial, but estimating the size of these increased

appropriations is inherently subjective as there is no empirical way to judge how much


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of an increase was due to the recession and how much was for other reasons. The

estimates in Table 3 below of the additional non-defense discretionary spending

appropriated in response to the recession utilize the same technique used to estimate

the size of automatic stabilizers; that is, CBOs pre-recession J anuary 2008 baseline is

compared to the amounts actually appropriated.10

It is assumed that all of the additional

appropriations were provided to counteract the impacts of the recession; although this

may well be an overestimate, omitting this spending entirely would underestimate

Congressional action. Note that as Congress has not provided full year appropriations

for FY2011 or any appropriations for FY2012, no additional discretionary spending is

included in this category for those years at this time.

Table 3. Addi tional Non-Defense Discretionary Spending(Outlays, in billions of dollars)

2008 2009 2010 2011 2012 2008-12

Non-defense outlays

2008 Baseline 517 531 542 n/a n/a 1590

Current estimates 519 581 666 n/a n/a 1766

Additional Non-defense Spending 2 50 124 n/a n/a 176

Financial Stabilization Efforts

In addition to the three efforts described above, in this crisis the Federal Government

took additional unprecedented actions to stem the negative effects of the current

financial crisis ... to scale up existing programs and make them more effective, and to

launch new programs designed to:

10At the time that CBOs J anuary 2008 baseline was prepared, Congress had appropriated only about

half of the expected 2008 costs for funding activities in Iraq and Afghanistan and for the war on terrorism.Thus, comparison of the 2008 baseline to amounts actually appropriated for defense would largelymeasure the impacts of providing full-year funding for these activities, not additional appropriations tocounteract the impacts of the recession. As a result, only additional non-defense discretionary spendingis included.


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expand access to credit;

strengthen financial institutions;

restore confidence in the financial sector; and

stabilize the housing sector.11

The Government committed more than $10 trillion in these financial stabilization efforts.

Although the Governments actual spending was much less than its commitments, and

its net spending after loan repayments and the sales of equity shares that it had

acquired will be even less, the commitments to provide financial assistance can be as

valuable as the provision of the assistance itself. Because of this and because of the

difficulty in comparing financial transactions with other responses to the recession, the

amounts of loans, equity infusions, and other commitments to assist the housing and

financial markets cant be added to the spending and tax cut efforts listed above as

commitments (especially net commitments over time) are measured in an entirely

different manner than spending or tax cuts.

Even a measure of the total amount of commitments is problematic because some

commitments are unknown or in a few cases unlimited. A listing of the various forms of

financial stabilization efforts was published by CBO in August 2009 and can be found at

Appendix B below.12

11

Office of Management and Budget, Budget of the United States Government for FY 2011, AnalyticalPerspectives, p. 27.

Taking the greater Disbursed or Potential funding from that

listing and adding to it the $600 billion in quantitative easing announced by the Fed in

12Additional actions, such as $600 billion in quantitative easing announced by the Fed in the fall of 2010,

and changes to the programs listed have occurred since August 2009. Nevertheless, the listing illustratesthe variety and complexity of the actions taken and the difficulty in doing comparative scoring of them.


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the fall of 2010 produces a total of just under $10 trillion. However, it would not be fair

to add the sum of these vastly different kinds of actions--ranging from reductions in

interest rates and many other actions by the Fed to placing Fannie Mae and Freddie

Mac into conservatorship--to the spending and tax reductions listed above. Despite the

fact that the financial stabilization efforts cant be added to the other Government efforts

to mitigate the impacts of the recession, it is appropriate to describe the Federal

Governments efforts in response to the recession as including both the more than $3

trillion in spending and tax cuts and the more than $10 trillion in financial stabilization

commitments.

Summary

Table 4 below presents a summary for the total of the stimulus bills, automatic

stabilizers, and increases in non-defense discretionary spending between 2008 and

2012 for both spending programs (outlays) and tax cuts (decreases in revenues). As

indicated, the size of these efforts in response to the recession, excluding the

Governments financial stabilization efforts, are currently estimated to be $3,389 billion

over the 2008-2012 period. Of this total, $1,350 billion, or 40%, was for spending

programs; the remainder for tax cuts. Importantly, more than half (52%) of these

responses to the recession have not yet taken place but will impact the economy in

2011 and 2012. Although the estimates used in this table are approximations that will

be revised in the future, $3.4 trillion--and the $10 trillion in financial stabilization efforts--

are much better estimates of the total amount of the Federal Governments responses

to the economic recession than citing just the size of the 2009 and 2010 stimulus bills.


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Table 4. Total Responses to the Economic Recession(in billions of dollars)

2008 2009 2010 2011 2012 2008-12

Stimulus Bills

Outlays 38 118 228 187 112 683

Revenues-114 -78 -155 -340 -344 -1031

Total 152 196 383 527 456 1714

Automatic Stabilizers

Outlays 21 94 204 126 46 491

Revenues -29 -207 -176 -302 -294 -1008

Total 50 301 380 428 340 1499

Additional Discretionary Spending

Outlays 2 50 124 0 0 176

Total Responses

Outlays 61 262 556 313 158 1350

Revenues -143 -285 -331 -642 -638 -2039

Total 204 547 887 955 796 3389Outlays % 30 48 63 33 20 40

Revenues % 70 52 37 67 80 60


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Appendix A. CBOs January 2008 Baseline Projections

The concepts that underlie CBOs baseline projections were stated in CBOs J anuary

2008 Budget and Economic Update:

The projections that make up CBOs baseline are not intended to be predictions of

future budgetary outcomesrather, they represent CBOs best judgment of how the

economy and other factors would affect federal spending and revenues if current

laws and policies remained in place. CBO constructs its baseline in accordance with

provisions set forth in the Balanced Budget and Emergency Deficit Control Act of

1985 and the Congressional Budget and Impoundment Control Act of 1974.

(Although the relevant provisions in the Deficit Control Act expired at the end of

September 2006, CBO continues to follow that laws specifications in preparing its

projections.) In general, those provisions spell out how the agency should project

federal spending and revenues under current laws and policies. The resulting

baseline can then be used as a benchmark against which to measure the effects of

proposed changes in spending and tax laws and policies.

For discretionary spending, the Deficit Control Act specified that the baseline should

be derived by assuming that the most recent years budget authority, including any

supplemental appropriations, is provided in each future year, with adjustments to

reflect projected inflation (as measured in specified indexes) and certain other

factors (such as the annual cost-of-living adjustments to federal benefits).


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For revenues and mandatory spending, the Deficit Control Act required that baseline

projections assume that present laws continue unchanged. In many cases, the laws

that govern revenues and mandatory spending are permanent. Thus, CBOs

baseline projections for those programs reflect anticipated changes in the economy,

demographics, and other relevant factors that affect the implementation of those

laws.

As Table A-1 indicates below, in J anuary 2008 CBO assumed steady real growth every

year between 2008 and 2012, much higher growth than what has actually occurred.

Table A-1. Comparison of CBOs January 2008 Pre-Recession BaselineAssumpt ions and Current Assumptions for Real GDP

(Calendar Years; percent change)

2008 2009 2010 2011 2012

January,2008

1.7 2.8 3.5 3.4 2.9

Current 1.2 -2.5 3.0 2.1 3.4


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Appendix B. CBOs Actions Taken by the Federal Government in Support of theHousing and Financial Markets as of August 12, 2009 13

(in billions of dollars)

FundingAction Disbursed Potent ial

Reductions in Interest Rates n.a. n.a.

Federal Reserve

The target for the federal funds rate (the interest banks charge on loans to other

banks) was reduced 10 times between September 2007 and December 2008, falling

from 5.25 percent to between zero and 0.25 percent.

Loans to Financial Institutions

Primary and Secondary Credit Programs 39 Unknown

Through the primary and secondary credit programs, the Federal Reserve

disburses short-term loans to banks and other institutions that are legally allowed to

accept monetary deposits from consumers. The term of the loan may be as long as 90

days.

Term Auction Facility 234 400

The Term Auction Facility (TAF) allows banks and other financial institutions to

pledge collateral in exchange for a loan from the Federal Reserve. The interest rate on

the loan is determined by auction; such auctions are conducted biweekly for loans with

13Congressional Budget Office, The Budget and Economic Outlook: An Update, Appendix B: The

Governments Actions in Support of the Housing and Financial Markets, August, 2009.


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a maturity of either 28 or 84 days. The maximum size of each auction is $100 billion,

although accepted bids for most recent auctions have been considerably smaller.

Acquis it ion of Bear Stearns by J.P. Morgan Chase 29 29

Backed assets to facilitate takeover of Bear Stearns by J.P. Morgan Chase

The Federal Reserve created Maiden Lane, a limited liability company (LLC), to

acquire certain assets of Bear Stearns at a cost of $29 billion. (An LLC offers protection

from personal liability for business debts, just like a corporation. The profits and losses

of the business pass through to its owners, as they would if the business was a

partnership or sole proprietorship.) The LLC will manage those assets to maximize the

likelihood that the investment is repaid and to minimize disruption to financial markets.

The current value of the portfolio on the Federal Reserves balance sheet is $26 billion.

Support for AIG 78 104

The Federal Reserve agreed to loan American International Group $60 billion. In

addition, the Federal Reserve Bank of New York bought $19.5 billion of residential

mortgage-backed securities from AIGs portfolio through an LLC and another $24.5

billion of collateralized debt obligations (CDOs) on which AIG wrote contracts for credit

default swaps through another LLC. (CDOs are complex financial instruments that

repackage assets such as mortgage bonds, loans for leveraged buyouts, and other

debtincluding other CDOsinto new securities. A credit default swap is a type of

insurance arrangement in which the buyer pays a premium at periodic intervals in

exchange for a contingent payment in the event that a third party defaults. The size of


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the premium paid relative to the contingent payment generally increases with the

likelihood of default.)

Support for Short-Term Corporate Borrowing 58 Unknown

Commercial Paper Funding Facility

The Commercial Paper Funding Facility (CPFF) finances the purchase of

commercial paper (securities sold by large banks and corporations to obtain funding to

meet short- term borrowing needs, such as payroll) directly from eligible issuers.

Securities purchased under this program may be backed by assets or unsecured; they

must be highly rated, denominated in U.S. dollars, and have a maturity of three months.

The program is in effect through February 1, 2010.

Support for Money Market Mutual Funds

Money Market Investor Funding Facility 0 Unknown

The Money Market Investor Funding Facility (MMIFF) is designed to restore

liquidity to money markets by purchasing certificates of deposit, bank notes, and

commercial paper from money market mutual funds and other similar investors. The

authority to purchase assets is in effect through October 30, 2009.

Asset-Backed Commercial Paper Money Market Mutual

Fund Liquidity Facility 0 Unknown

The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

(AMLF) provides funding to U.S. depository institutions and bank holding companies to


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finance their purchases of high-quality asset-backed commercial paper (ABCP) from

money market mutual funds under certain conditions. The program is intended to assist

money market funds that hold such paper in meeting demands for redemptions by

investors and to foster liquidity in the ABCP market specifically and money markets

generally. The program is in effect through February 1, 2010.

Support for Primary Dealers

Term Securities Lending Facility and TSLF Options 3 75

Program

The Term Securities Lending Facility (TSLF) offers to lend Treasury securities held

by the Federal Reserve for a one- month term in exchange for other types of securities

held by the 18 financial institutions, known as primary dealers, that trade directly with

the Federal Reserve. The TSLF Options Program (TOP), which has been suspended,

offered options on short-term TSLF loans that were to be made on a future date. (An

option is a contract written by a seller that conveys to the buyer the rightbut not the

obligationto buy or sell a particular asset.)

Primary Dealer Credit Facility 0 Unknown

The Primary Dealer Credit Facility (PDCF) provides overnight loans in exchange

for eligible collateral to financial institutions that trade directly with the Federal Reserve.

The program is in effect through February 1, 2010.

Support for the Mortgage Market


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Purchases of the debt of housing-related

government-sponsored enterprises 110 200

The Federal Reserve will purchase up to $200 billion in debt issued by three

government-sponsored enterprises (GSEs)Fannie Mae, Freddie Mac, and the

Federal Home Loan Banksthrough competitive auctions over the next several

quarters.

Purchases of mortgage-backed securities 543 1,250

Over the next several quarters, the Federal Reserve will purchase up to a total of

$1,250 billion in mortgage-backed securities (MBSs) issued by GSEs and the

Government National Mortgage Association (Ginnie Mae).

Support for Credit Markets 253 300

The Federal Reserve will purchase up to $300 billion of longer-term Treasury

securities over a seven-month period ending this fall.

Support for Consumer and Small Business Lending

Term Asset-Backed Securities Loan Facility 30 200

Through the Term Asset-Backed Securities Loan Facility (TALF), the Federal

Reserve Bank of New York will lend up to $200 billion to holders of certain AAA-rated

asset-backed securities collateralized by a range of loans to consumers and small

businesses, and the Troubled Asset Relief Program will provide $20 billion of credit

protection (protection against debtors that do not pay because of insolvency or


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protracted default) for those loans. The TALF began lending in March 2009; the

authority to extend the different types of loans expires during the first half of 2010.

Currency Swaps with Selected Foreign Banks 75 Unknown

In response to strong demand for dollars from abroad, the Federal Reserve has

contracted with 14 foreign central banks to make U.S. dollars available temporarily.

After a specified period of time, the original amounts of dollars will be returned in

exchange for the foreign currency.

Assistance to Cit igroup 0 220

The Federal Reserve has agreed to absorb 90 percent of any losses resulting from

the federal governments guarantee of a pool of Citigroups assets after payouts have

been made by Citigroup, the Troubled Asset Relief Program, and the Federal Deposit

Insurance Corporation.

Assistance to Bank of Amer ica 0 87

The Federal Reserve has agreed to absorb 90 percent of any losses resulting from

the federal governments guarantee of a pool of Bank of Americas assets after payouts

have been made by Bank of America, the Troubled Asset Relief Program, and the

Federal Deposit Insurance Corporation.

Treasury


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Troubled Asset Relief Program 292 699

The Emergency Economic Stabilization Act of 2008 (Division A of P.L.110-343)

granted authority to the Treasury to purchase $700 billion in assets through a new

program, the Troubled Asset Relief Program (TARP).

To date, the programs outstanding disbursements total $292 billion. The subsidy

cost estimated by the Congressional Budget Office (CBO)about $90 billion to dateis

computed using the modified credit reform procedure (that is, accounting for market

risk) specified in P.L. 110-343.

Housing-Related Tax Provisions 8 Unlimited

The Housing and Economic Recovery Act of 2008 (P.L. 110-289) authorized a

refundable tax credit for first-time home buyers (to be repaid, without interest, over a 15-

year period) and contained other housing- related tax provisions. The American

Recovery and Reinvestment Act of 2009 modified the refundable tax credit for first-time

home buyers by extending the qualifying purchase period through November 30, 2009.

In addition, for homes purchased after December 31, 2008, it raised the amount of the

credit to $8,000 (from $7,500) and waived the repayment requirement.

Purchases of Obligations and Securities Issued by

Fannie Mae and Freddie Mac 178 Unlimited

The Housing and Economic Recovery Act of 2008 authorized the Department of

the Treasury to buy obligations and securities issued by Fannie Mae and Freddie Mac.

About $178 billion of residential mortgage-backed securities (securities whose value is


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derived from an underlying pool of mortgages) had been purchased as of J uly 29, 2009.

Authority to make such market purchases expires on December 31, 2009. The subsidy

cost recorded in the budget is computed using standard credit reform procedures.

Conservatorship for Fannie Mae and Freddie Mac 85 400

The Treasury received senior preferred equity shares and warrants in exchange

for any future contributions necessary to keep the two entities solvent. (Preferred equity

shares provide a specific dividend to be paid before any dividends are paid to common

stockholders and take precedence over common stock in the event of a liquidation; a

warrant is a security that entitles the holder to buy stock of the company that issued it at

a specified price.) CBO views Treasury cash disbursements to Fannie Mae and Freddie

Mac as intragovernmental transfers; CBO estimates that including the GSEs operations

in the budget would increase the federal deficit by $291 billion in 2009.

Temporary Guarantee Program for Money Market Funds 0 2,470

The Treasury will guarantee investors shares as of September 19, 2008. The

guarantee is in effect through September 18, 2009. Participating funds pay a fee of 1.5

or 2.3 basis points times the number of shares outstanding. (A basis point is one-

hundredth of a percentage point.)

Supplementary Financing Program 200 Unlimited

The Treasury is borrowing from the public to assist the Federal Reserve.


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Temporarily Raised the Basic Limi t on Insurance Coverage

Federal Deposit Insurance Corporation

from $100,000 to $250,000 per Depositor n.a. 700

The Helping Families Save Their Homes Act of 2009 (Public Law 111-22)

temporarily raised the limit on deposit insurance through December 31, 2013. That

action is estimated to increase the amount of insured deposits by about $700 billion, or

15 percent.

Temporary Liquidity Guarantee Program n.a. 1,450

The Temporary Liquidity Guarantee Program has two components. The firstthe

debt guarantee programaims to enable participating institutions to borrow and lend

money more readily. It fully protects certain newly issued senior unsecured debt

(securities that are not backed by collateral and have priority over all other debt in

ranking for payment in the event of default) with a maturity of more than 30 days,

including promissory notes, commercial paper (securities sold by large banks and

corporations to meet short-term needs, such as payroll), and interbank funding. The

guarantee applies to debt that is issued by October 31, 2009, and matures no later than

December 31, 2012. Participating institutions pay fees based on the maturity of the

debt. To date, the Federal Deposit Insurance Corporation (FDIC) has guaranteed $339

billion of new debt; potential guarantees could total $1 trillion.

The second component provides full guarantees for certain checking and other

non-interest-bearing accounts through December 31, 2009. Participating institutions


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also pay fees for this guarantee. To date, the FDIC has guaranteed $700 billion under

the program.

Assistance to Cit igroup 0 10

The FDIC may absorb up to $10 billion in losses resulting from the federal

governments guarantee of a pool of Citigroups assets after payouts have been made

by Citigroup and the Troubled Asset Relief Program. As a fee for the guarantee, the

FDIC has received $3 billion in preferred stock (shares of equity that provide a specific

dividend to be paid before any dividends are paid to common stockholders and that take

precedence over common stock in the event of a liquidation).

Redevelopment of Abandoned and Foreclosed Homes 0 6

The Housing and Economic Recovery Act of 2008 (P.L. 110-289) provided $4

billion in funding to state and local governments to purchase and rehabilitate foreclosed

and abandoned homes. The American Recovery and Reinvestment Act of 2009 (P.L.

111-5) provided an additional $2 billion (through the Community Development Fund) for

the program.

Department of Housing and Urban Development

HOPE for Homeowners Program 0 1

The HOPE for Homeowners program permits home mortgages to be refinanced

through private lenders with a guarantee from the Federal Housing Administration

(FHA). The new loans must have a loan-to-value ratio that is no greater than 90 percent


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of the propertys appraised value (or such higher percentage as the Department of

Housing and Urban Development determines).

FHA Secure 0 1

FHA Secure was a temporary initiative to permit lenders to refinance non-FHA

adjustable-rate mortgages. The program, which began in the fall of 2007, made about

4,000 loans and expired on December 31, 2008.

Federal Housing Finance Agency

Conservatorship for Fannie Mae and Freddie Mac n.a. n.a.

The Federal Housing Finance Agency and the Treasury took control of these two

government-sponsored enterprises (GSEs) on September 6, 2008. Under the current

circumstances, the Congressional Budget Office (CBO) views Fannie Mae and Freddie

Mac as governmental entities.

Credit Union System Investment Program and the

National Credit Union Administration

Homeowners Affordability Relief Program 8 8

These two loan programs are intended to aid corporate credit unions (which

primarily provide financial resources and services to other credit unions). They are

operated through the National Credit Union Administrations (NCUAs) Central Liquidity

Facility (CLF) and are financed by borrowing from the Federal Financing Bank. The

programs loaned funds to credit unions to invest in notes issued by corporate credit


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unions through J une 30, 2009. The notes are guaranteed through J une 30, 2017, by

NCUAs Temporary Corporate Liquidity Guarantee Program.

Liquidi ty Advances to Corporate Credit Unions and the

National Credit Union Share Guarantee 10 Unknown

To mitigate losses on securities held by corporate credit unions, the NCUA

implemented two special measures. First, the National Credit Union Share Insurance

Fund borrowed from the CLF to provide liquidity to the two largest corporate credit

unions. The NCUA also created the National Credit Union Share Guarantee, which

provides a guarantee of all shares held at most corporate credit unions through

September 30, 2011.

Multiple Agencies

Making Home Affordable Plan Unknown 75

The plan seeks to provide aid to homeowners through two programs. The Home

Affordable Modification Program (HAMP) helps lower the monthly mortgage payments

of eligible borrowers by providing incentives to servicers and borrowers to modify the

terms of their mortgages. More than 235,000 trial modifications had started by the end

of J uly. The program expires on December 31, 2012. The Home Affordable Refinance

Program (HARP) enables homeowners whose loans are guaranteed by Fannie Mae or

Freddie Mac to refinance their mortgage balance up to 125 percent of the current value

of their home. About 190,000 loans have been refinanced through the program since it

began in April. It expires on J une 10, 2010.


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In total, the Administration has committed $75 billion to the plan. Of that amount,

$50 billion is from the Troubled Asset Relief Program, and the remainder is from other

federal entities, including the GSEs and the Department of Housing and Urban

Development.

Bibliography

Congressional Budget Office, J anuary, 2008

The Budget and Economic Outlook:

J anuary. 2009 J anuary, 2010

Congressional Budget Office, The Budget and Economic Outlook: An Update August, 2008

:

August. 2009 August, 2010

Congressional Budget Office, The Effects of Automatic Stabilizers on the FederalBudget, May 2010.

Congressional Budget Office, Scorekeeping Reports, Various Bills, 2008-2010.

Cohen, Daniel, and Glenn Follette, The Automatic Fiscal Stabilizers: Quietly DoingTheir Thing, Economic Policy Review

, Federal Reserve Bank of New York, volume 6,number 1, April 2000.

Cooper, J ames C. Stimulus II: Game Changer for Spending and the Economy, TheFiscal Times

, December 20, 2010.

Krugman, Paul, various editorials in the New York Times

, 2010.

Office of Management and Budget, Budget of the United States Government for FY2011, Analytical Perspectives, February, 2010.

hoover institution stimulus measurement article

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